Daily Newsletter, Wednesday, 2/20/2019

Table of Contents

Market Wrap

Minutes

by Thomas Hughes

Today's market was mostly about the FOMC minutes. Early action was anxiously hopeful and that was evident in hurky jerky trading. Later in the day market action was equally anxious and less clear on what the future will bring. Market action was volatile, both before and after the minutes were released, but the indices held within tight ranges near recent highs.

The Fed's Minutes were good, maybe too good. The committee 'favors' an end to quantitative easing sometime later this year which is a little better than expected. I thought they might taper it off to a lesser amount because the balance sheet is still substantial. The FOMC will be QT'ing again sometime in the future I suspect.

The bad part of the minutes suggest risks for economic growth are mounting but I take that with a grain of salt because the risks are all tied to trade. If the US and China remain on a path leading toward resolution economic growth will be better than expected, the talks fall apart it will be much worse than feared. Oddly enough, the Fed says it wants to end QT so it can give the market more certainty but they've only heightened awareness of the impact of trade relations.

Market Statistics

Not much news on trade, US/China trade, in today's news other than yesterday's cryptic hints that all was progressing well. What was in the news is word from Trump he'll be bucking down on the EU. He says he'll impose tariffs on EU autos if the Union won't play ball.

Economic Calendar

The Economy

There were two economic reports on the calendar for today but they've both been delayed due to the government shutdown. They were housing related, Housing Starts and Permits, and fairly important in the scheme of things so the lack of data is noticeable. However, we did get a read on weekly mortgage applications and those jumped 3.6%. As a leading indicator of future homes sold it is a good sign that housing activity is picking back up.

The odds of an FOMC interest rate are declining from their already slim chances, the odds of an FOMC rate cute are growing. This is likely to change drastically over the next month considering all the data we've missed, signs of accelerating activity in the data points we've seen, and the fact we'll have some concrete signal on trade soon whether it's good or bad.

The Dollar Index

The Dollar Index weakened on the FOMC minutes but it was not a strong move down. The index is testing support at the short-term moving average, within a trading range, and so far support is still holding. The indicators are weakening as well and suggest support could be tested again and possibly broken. If the index does move below the index the bottom of the range is near $95 where I expect support will kick in. There is a fair amount of data due out tomorrow but nothing too market moving barring a major surprise. The catch is that among tomorrows data points are Markit PMI numbers (for all regions/countries) and that could spark some volatility in currencies.

The Gold Index

Gold prices edged higher to extend yesterday's rally but the gains were capped. The metal is supported by geopolitical tensions but the weakening dollar is holding it back. Today's action may signal a top in gold, I would expect to see prices move sideways over the next few days at least if not pull back to test for support. Today's low is the first target for support, $1,340, a move below that could spot prices retrace their way back to $1,300.

The Gold Miners ETF GDX also moved higher in today's action only to see the gains capped by resistance. The ETF surged up at the open to create a shooting star-like candle pointing to resistance at $23.50. The candle is strong regardless and may lead to sideways movement and consolidation regardless of the bearish overtone. The indicators are bullish, if weak, and suggest prices could drift higher in the near term. A move above$23.50 may be bullish but would still face resistance at today's high. A move lower would confirm resistance and possible for reversal in prices.

The Oil Index

Oil prices moved up 1.5% in on growing hope of market rebalance. The move is driven on hope, there was no data today, and word from Nigeria it too would work to help OPEC tighten supply. The news is contrary to word from the EIA which says US shale production will hit a new record near 8.5 million barrels per day next month. WTI is now trading at another new high and exiting a bullish head and shoulders reversal on its way higher. Now that the price of oil is on the move we can expect to see momentum build until the trade is saturated, or WTI hits resistance. The next target for resistance is $58.

The Oil Index moved higher on today's strength in oil. The index is exiting a consolidation zone and moving above resistance in tandem with the underlying commodity. The move is supported by a bullish outlook for oil although the outlook for earnings growth may weigh on prices in the near to short-term. The indicators are bullish and pointing higher so upward drift is expected, the risk is that the indicators are weak and resistance is just above today's close. The first target for resistance is the long-term moving average, a move above that would be bullish.

In The News, Story Stocks and Earnings

Late in the day word spread a pedophile site was using YouTube to do whatever it is they do and the response from advertisers was swift. Top names like Disney and Nestle among a host of others have suspended advertising until further notice. The scandal is not the first for YouTube or its parent Alphabet/Google, likely not the last, and had little impact on share prices.

CVS reported before the opening bell, it was not what the doctor ordered. The company reported revenue growth but less than expected and gave weak guidance for the coming year. Growth is slowing as competition heats up for consumer and health dollars. Shares fell more than -8.0% in premarket trading.

Garmin reported before the open and was able to guide its investors the right direction. The navigation experts delivered revenue and EPS above consensus and increased their full-year outlook. In the coming year, Garmin expects revenue growth in the range of 4% regardless of the impact of tariffs or global tensions. Results were good enough to increase the dividend, up 7.5% from previous, which was also well received by investors. Shares of the stock surged on the news moving up 5% and more in early trading and then extended the gains to 17% by the end of the day.

Boston Beer reported after the close serving up better than expected results. Revenue is up 9.2% over the same period last year with EPS far surpassing consensus estimates as cost-controls and depletions boost earnings. The outlook for the full year is a wide range, EPS of $8.00 to $9.00, but it is enough to keep the market interested. Shares moved up 2.0% on the news.

The Indices

Up down and sideways was the name of today's game. The indices moved within tight ranges but the action was volatile as bulls and bears fought for control. Two indices, the NASDAQ Composite and Dow Jones Transportation Average, created perfect little doji spinning tops in the process. The transports set a new high with today's candle but the gain was slim, only 0.09%. The index rally may be topping out but the indicators are still bullish so upward drift is still expected. The next resistance target I have is still a little way up so there is room for the index to move. A move higher may go as high as 10,800 before hitting resistance, a move above that would be bullish.

The NASDAQ Composite also set new highs today, both intraday and closing, but the advance was equally slim, only 0.03%. The index is pushing up against resistance at 7,500 and may break through if only because of slowly rising sentiment. The indicators are bullish but weak and divergent from the new high so there is some risk of reversal at this level. A move above 7,500 would be bullish and could take the tech-heavy index up to 7,750 and 8,000.

The S&P 500 advanced 0.17% to create a small green candle. The candle is pushing up against the bottom of my uptrend line where it looks like bullish pressure is present. The indicators are bullish and ticking higher which is consistent with rising markets, the caveat is that they are divergent from the high. The divergence is not great and there are tailwinds to support the market so a move higher is expected although it may be impeded by resistance. A move above the trend line would be bullish and possibly lead to more aggressive action, particularly if the index surpasses 2,800.

The Dow Jones Industrial Average advanced 0.24% in today's session, created a small green candle, and set a new closing high. The index is supported by both indicators and price action is above a major uptrend line so upward movement is expected. Resistance may be just above today's close, near 26,000, and could alter outlook if prices are halted or reversed. A move above 26,000 would be bullish, my target would be 26,500 and 27,000. If the index confirms resistance at this level a move to 25,500 and 25,000 is possible.

There are a lot of swirling currents in the market but they all come back to one thing. Trade. It's a tale of two outlooks; if the trade talks bear fruit the global economy will enter a new age of growth. If the trade talks don't bear fruit, if new tariffs are put in place, if another shackle is put around global and US growth, the global economy will enter a dark age of protectionism. Nothing else really matters until the talks are settled, until then we have to keep muddling along hoping for the best.

The data points to modest growth around the world if things stay as they are but how long can that last? The trade negotiations are gaining momentum, this week could be a turning point, but which way will it turn? Will the talks stall, fall apart, or progress? I am optimistic they will progress. I remain firmly bullish for the long term, ever so cautiously bullish for the near-term.

In Play Updates and Reviews

Up Down And Sideways

by Thomas Hughes

The FOMC minutes were more than expected in that the committee is signaling a willingness to end quantitative tightening sooner than expected. The minutes were also more than expected in that they note enhanced risks to economic growth. In the end, after a day of moving up down and sideways, most indices closed the day in the green.

Current Portfolio

Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.

Profit Targets

Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.

Current Position Changes

Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.